Answer to Question #225402 in Microeconomics for Jack

Question

1. If the supply function of a firm is given as follows: -

S = 200.25 + 4.5P

Interpret the supply function and explain by the help of a diagram.

2. Given d_a (Demand of a) = 200.5 + 3.5I. Suppose this is an income demand function, interpret the result and show by the help of a diagram.

Answer 1

1) At price 0 the quantity of supply will be 200.25

4.5 is the coefficient of price implying that a unit change in price will lead to 4.5 units change in quantity supplied.

2) The quantity demanded when income is zero is 200.5

A unit change in income will lead to 3.5 units change in quantity demanded.